NVOCC and Freight Forwarder are two of the many terms that are used interchangeably within the shipping and freight industry.. It maybe so because many people don’t understand or acknowledge the difference between these two entities especially when it comes to documentation and liabilities..
So let us look at the difference between a freight forwarder and NVOCC in detail..
FMC defines NVOCC – Non-Vessel-Operating Common Carrier as:
- a common carrier that holds itself out to the public to provide ocean transportation, issues its own house bill of lading or equivalent document, and does not operate the vessels by which ocean transportation is provided
- a shipper in its relationship with the vessel-operating common carrier involved in the movement of cargo
As there is no global regulatory body to register, control or regulate NVOCCs around the world, it is difficult to see how many NVOCCs are currently in operation around the world or where they are based..
It is widely believed that the US market has the largest number of NVOCC operators in the world.. USA may also be the one of the few countries where an NVOCC needs to be registered prior to offering services..
Before offering services in the US Trades, NVOCCs are required to follow certain protocols including
- securing a licence from the FMC ;
- submit proof of financial responsibility for the payment of any claims that may occur and ;
- publish a tariff of charges that will be applied to their clients
NVOCC registration is also required in China as per certain publications which says that the operator must be registered with Ministry of Transportation.. But there doesn’t seem to be quite clear a definition on whether the NVOCC operator needs to register their bill of lading or not..
Similarly the requirement or need for registration of an NVOCC in other major jurisdictions is clear as mud.. If any of you know of any jurisdiction where the registration of a NVOCC is strictly followed, please comment..
What is the function of a NVOCC..??
A NVOCC is often termed as a “carrier to shippers” and “shipper to carriers”.. What does this mean..??
At the most basic level, a NVOCC enters into volume based ocean freight arrangements with the various shipping lines operating across the various trade lanes.. A NVOCC then creates their own tariff based on which they sell space on these liner services to their various clients..
A NVOCC’s client list may include
- BCO – Beneficial Cargo Owner which is another term for Exporter or Importer
- Freight Forwarder
- Clearing Agent
- Freight Broker
Depending on certain jurisdictions and markets, NVOCC’s activities may include but not restricted to below :
- concluding contracts of international carriage of goods with the shippers as carriers;
- receiving cargo and delivering cargo as carriers;
- issuing bills of lading (usually a House Bill of Lading) or other transport documents;
- collecting freight and other service charges;
- booking space and arranging shipping with mainline carriers;
- paying port to port transportation freight or other transportation charges;
- consolidation and deconsolidation of containers either using own CFS or 3rd party
As an example, you can look at Blue Anchor Line who are one of the top 25 NVOCCs in the world and ranked No.1 NVOCC in the world in 2017..
Blue Anchor Line will have various volume based space/rate arrangements with various carriers around the world, across various trade lanes.. So they may choose to use a carrier like MSC or Maersk or CMA-CGM to ship your goods..
You as a shipper may benefit from the volume based rates that Blue Anchor Line is able to negotiate with the carriers..
A NVOCC can and sometimes do own and operate their own or leased containers and depending on the various types of contracts, a NVOCC is accorded the status of a virtual “carrier” and in certain cases accepts all liabilities of a carrier..
In line with this, a NVOCC will have their own agent at Port of Load and Discharge to handle the requirements for the release of goods and containers to the clients..
Ok so who is a freight forwarder..??
FMC defines a Freight Forwarder as below :
An Ocean Freight Forwarder (OFF) is an individual or company located in the U.S. which:
- arranges cargo movement to an international destination
- dispatches shipments from the United States via common carriers and books or otherwise arranges space for those shipments on behalf of shippers
- prepares and processes the documentation and performs related activities pertaining to those shipments
While this definition maybe specific to USA as described by the FMC, by and large this is the text book definition of a freight forwarder.. In terms of licencing, in the USA, an OFF follows the same process as an NVOCC..
When you are an exporter,shipper (yes these are different) or importer, invariably you will need an agent to look after your shipment, handle all your documentary and transport requirements..
There is no one simple and quick explanation as to who is a freight forwarder and what they do.. In the most succinct and layman terms, a Freight Forwarder is a multi-function agent/operator who undertakes to handle the movement of goods from point to point on behalf of the cargo owner..
So what does a freight forwarder actually do and how is that different from what a NVOCC does..??
The essence of freight forwarding is to ensure that the cargo is picked up from the seller and delivered to the buyer at the required place, at the right price and in the same condition that it is picked up from origin using the most suitable resources and routing possible..
As per the WTO, global trade in 2017 was worth USD.16/- trillion.. As per 2017 estimates by UNCTAD, out of the world seaborne trade of 10.7 billion tons, containerised shipments accounted for about 17.1% which is around 1830 million tons.. This was carried in around 148 million containers, covering 9535 billion ton miles.. Staggering isn’t it..??
If you are an importer, exporter or shipper (yes they are different) imagine having to go through the activities of arranging trade finance, documentation, negotiating freight contracts, monitoring the movement of the cargo, transportation, customs clearances, port inspections and all other activities by themselves for the above volume..
Daunting huh..!! That is where a Freight Forwarder comes in..
A well established and experienced freight forwarder is expected to have below capabilities (either owned or outsourced)
- experienced in all modes of transportation – road, rail, air and sea
- able to provide cost effective and efficient cargo shipping solutions based on the customer’s requirement
- able to arrange storage for the cargo (usually all big forwarders have their own warehouses)
- able to arrange the distribution or “forwarding” of the cargo as per the instructions of their client
- have the capability to negotiate freight rates with a carrier – either NVOCC or Ocean carrier
- able to book cargo with the shipping line as per the requirement of the client or under their own contract
- process all relevant shipping documents such as certificates of origin, customs and port documentation, bills of lading and associated shipping/negotiating documentation (Eur1, Certificate of Origin, etc)
- issue their own approved house bill of lading (HBL)
- arrange transportation of the cargo from/to the customers premises and port
- have thorough knowledge of over border cargo movement
- able to arrange customs clearance
So, can just about anyone become a freight forwarder..??
Theoretically the answer seems to be YES, anyone can call themselves a freight forwarder..
I say this because there is no global regulation or licensing requirement for anyone wanting to become a freight forwarder compared to someone wanting to become a clearing agent or customs broker which incidentally is different from being a freight forwarder.
As long as one is able to fulfill above duties and the client is satisfied with their credentials, anyone can term themselves a Freight Forwarder..
A forwarder will however need to register with the Local city/revenue authorities, Tax authorities etc as per local regulations for the purposes of issuing an invoice and conducting a forwarding business legally..
As per my knowledge USA with its OTI licensing and China with its Class A,B,C,D forwarder licensing, requires a freight forwarder to be licensed before commencing forwarding operations.. (If anyone knows of any other countries where you are required to be licensed to operate as a freight forwarder, please do share..)
A forwarder may also need to be registered with local customs and port authorities in order for them to file their own manifest, release their delivery orders or issue their bills of lading.. Some forwarders also belong to international groups/federations of freight forwarders although that is also not mandatory unless use want to use a freight forwarders bill of lading..
While the big boys in freight forwarding may have their own infrastructure and facilities to handle the functions of a freight forwarder, there are scores of freight forwarders who don’t have their own infrastructure and facilities and outsource most of their activities..
They carry out all or most of the above mentioned activities as a 3PL Logistics provider whose definition includes freight forwarders, courier companies, companies offering logistics and transportation services on a sub-contracted basis..
The term freight forwarder however, is being used quite loosely nowadays and a lot of the companies/people entering the logistics field term themselves a freight forwarder for lack of better understanding of their operation and what to call themselves..
In their own interest and to ensure the prompt handling of their cargo, a customer (importer or exporter) must do their due diligence when appointing a freight forwarder and follow the necessary precautions and safeguards especially if they are importing for the first time or exporting for the first time..
As you can see above, there are some commonalities between a NVOCC and Freight Forwarder and in some cases depending on the activities handled, the dividing line could be a blur.. Both of them could be competing in the shipping industry against each other..
One of the main differences between a NVOCC and Freight Forwarder is that a customer (whether exporter or importer) “appoints” a freight forwarder to “act as their agent” whereas they “employ the services” of a NVOCC as one of their “service providers (not as agent)” in this case, as a carrier, same as they would a shipping line..
All said and done, a NVOCC and a Freight Forwarder both have their place in the industry, both take care of customers in their own rights, both need each other to be strong and most importantly, both perform critical functions to keep the propellers of global trade spinning..